I was reading Channelnewsasia (my preferred source of Singapore news ever since Straits Times go subscription-based) when I saw this article: Japan PM says deflation continues but policy in BoJ's hands. Now, what exactly is deflation? Deflation is a situation that occurs whenever the value of the money you have with you gets higher as time goes by. In other words, the $3 you have right now can buy a bowl of noodles, but can buy 2 bowls in, say, a year. It's the opposite of a situation that occurs in any normal economy - inflation (where you need $3 to buy a bowl of noodle now, but $4 a year later).
So what's so terrible about deflation? I mean, isn't it wonderful that you can buy more things with the same amount of money? Unfortunately, most economies today are run by consumer spending - people must buy to make the economy grow. If people don't buy, then the businesses don't get profits. If they don't get profits, they cannot pay their employees, and so the vicious cycle continues.
In a deflatory environment, people are not willing to spend - if they spend now, they'll find themselves looking silly as the value of what they own (not the cash they own) becomes lower. This is especially true for high-value items like cars and property. And even more for investment products like stocks.
A deflatory environment also tends to occur in high savings societies like Japan (and in a way, Singapore right now - our inflation rate is so low compared to other economies that we can be counted as deflatory when standing side by side! But of course, that is not really true...).
It is interesting that the economies of today work on how much the printed money is being cycled (exchanged). Money that sits in the bank causes frown lines on the government policy-makers. Normally the only solution is to print more notes (yeah, fiat money), or lower interest rates so people would borrow more. Now you know why the whole world watch the Federal Reserve's Interest Rates! With the USD being the most circulated currency in the world, any decision to change interest rates affects the whole world!
ไม่มีความคิดเห็น:
แสดงความคิดเห็น